Biosyent Inc

XTSX:RX

Earnings Call Transcript 2021-Q4

[René Goehrum, executive]

Hello, and welcome to the Q4 and fiscal year 2021 results presentation for BioSyent Inc. My name is René Goehrum, and I'm the President and CEO of the company.

I'm going to start today's presentation with a look at our revenue, EBITDA and net income after tax for the quarter ended December 31, 2021. As you can see, our sales reached just above $7.2 million in the quarter, which represented a 26% increase versus the year ago. Our EBITDA was just above $2.6 million, representing 136% increase to the year ago. And our net income after tax was just below $1.9 million, 182% of the year ago period.

So the fourth quarter represented our 46th consecutive profitable quarter, and that revenue growth was driven across the business. So our Canadian Pharma business was up 20%. Our International Pharma business, up 462%; and our Legacy Business was up 58%. I've got a few more detailed comments when we get down to individual brands.

The fourth quarter represented our highest net income after tax for a quarter ever, the $1.878 million, and that was our net profit margin of 26%. Let's take a look at the full year result then.

So on a full year basis, sales were just over $28.6 million. That was 28% ahead of the year ago. Once again, all segments of the business performing broadly. Canadian Pharma, up 21%; International, up 621%; and the Legacy Business, up 40%. So that's on a full year 12-month basis.

Across the portfolio, the Canadian Pharmaceutical business performed. Tibella and Combogesic contributed to sales growth. Combogesic is the more recent product in the market. And I've got some comments on challenges in the COVID environment on those 2 products, but they both contributed to the top line growth for the business.

We certainly saw a resurgence of our International Pharmaceutical business that started with a bang in January of last year with a large shipment to a large customer that we have not provided any goods to for over 12 months.

Overall, our net income of $6.28 million represented a net profit margin of 22% and was up 66% to the year ago. And our EBITDA of $8.78 million was up 57% to the year ago.

So all of this then flowed through to earnings per share of $0.15 for the quarter, which was up 3x versus the year ago and essentially a result of outstanding performance from a profitability perspective and an ongoing steady repurchase of shares under our NCIB as well.

So you can see for the full year, we earned $0.49 a share fully diluted, very strong performance versus the 29% for the year ago period. Although the numbers themselves look very impressive, the work there was done not in 2021. The work was done going back several years. I can think back to starting that process on a FeraMAX life cycle strategy in 2016, in-licensing Tibella in 2016. And then all of the steps in between on those products, the new products, our life cycle strategy on Tibella, on in-licensing Combogesic, these are a series of right decisions on the right assets at the right time to develop the right strategy to promote those products and then to get them into the market and build awareness and trial amongst health care professionals and patients and/or consumers as the case may be. So strong performance on a 1-year basis, but really the cumulative effect of years of work by an entire dedicated team in the company.

So let's take a little bit of a deeper dive on a brand basis or a segment basis. So what you see here on this chart shows fourth quarter dollars and units and full year 12-month dollars and units. So the Canadian Pharmaceutical business was up 20% in the quarter, as I mentioned before, 21% in the year, just under $26 million. And you can see that broadly was made up of strong sales performance, both in the quarter and for the full year basis.

FeraMAX grew double digit, RepaGyn high single digit. Tibella was up 100% in the quarter, fourth quarter versus a year ago. It doesn't have a comparable for a full year look.

Combogesic was last couple of weeks of December 2020. So it doesn't have a comparison at this stage. Cathejell units were down modestly in the quarter versus a year ago. But taken on a full year basis, was up 12%.

And you can see here, the Aguettant business was strong in unit performance, both in the quarter and for the full year. Some of the quarter performance was really the trade anticipating a shift to a new source of supply and making sure that they had sufficient inventory in hospitals as COVID ramped up and as they were notified that there would be a change in supply and vendor for them. And so there was some defensive purchasing of the Aguettant System in the fourth quarter.

Cysview, you can see strong performance. The year ago comps, they're not very strong. The brand didn't do well in 2020. Nevertheless, finishing in green numbers was a good outcome.

The International Pharmaceutical business, essentially sales of FeraMAX to overseas markets performed well, both in the quarter on a full year basis. And the Legacy Business had a large single export shipment sold to a Canadian customer but for export distribution. And so you can see both on a quarter and on a full year basis, that business performed well.

So let's talk a little bit about our friend COVID, not so friendly. We're 2 years into the pandemic. I've been updating in this quarterly presentation throughout that time. So some of this information is not new, nor is it new because you read the news.

So through the COVID time of 2020 and 2021, our Canadian Pharmaceutical business has performed well, though we have not had access to HCPs, to doctors as we were accustomed before COVID. Patients also have not been seeing their doctors with the same frequency, certainly not face-to-face. And when you're launching new products, that is a factor. And we know that the traffic in the doctor's office from patients is not at pre-COVID levels. This is -- we've gotten this through a number of surveys and industry information.

The impact has been the greatest on Tibella and Combogesic. Obviously, you saw the Tibella performance was strong, but still not up to our expectation, and neither has been Combogesic's performance. So they have been the most affected by the COVID situation.

And what we have found is that our access has been improving here over the last number of weeks. January was difficult again because of Omicron. And then as we see some of the public health restrictions, provincial restrictions are being lifted. We see a growing trend in terms of getting access to both health care professionals and to pharmacists and as the pharmacist seem to be spending less time with patients and vaccinations.

So let's take a look at some of the growth drivers in the business. The one obviously that there's a lot of interest in is FeraMAX as it's such an important brand for our company. We've been talking now for 1.5 years about our life cycle strategy. We developed, together with our partner, a new platform for product innovation for the FeraMAX brand. This is a FeraMAX PD, a patented polydextrose iron complex. This PDIC platform serves as a foundation for future product developments.

So we've built a really strong brand in the market in Canada. It's the #1 recommended oral iron supplement both by doctors and pharmacists. That's now 6 years running. Based on the brand performance last year, I would expect the 2022 survey to give us similar information in terms of its rating.

In October of 2020, we announced the new FeraMAX PD platform. Shortly thereafter, we launched the first product on that platform, FeraMAX Therapeutic 150. That product replaced the older FeraMAX 150 in the market. This was broadly distributed in over 10,000 pharmacies in Canada. So the job of getting that product replaced, the old off the shelf and the new into the hands of patients samples in the doctor's office was done. And I would say in a COVID world without hiccup, supply chain was continuously supported. The product was at the right place in the right time. And you could see that the results were very strong on the FeraMAX business.

FeraMAX PD Powder 15 was launched in October of '21. That replaces the old FeraMAX Powder. That process of replacing is ongoing and should be largely completed by the time we get to midyear this year.

So we have an internally generated life cycle strategy to innovate with the FeraMAX brand, take a strong brand that's got great recognition amongst health care professionals and patients, and to leverage that brand recognition and equity to further innovation. And that's really what drives our growth thesis for this brand.

So in addition to the existing FeraMAX products, we're preparing a new product for launch in 2022. And development is underway for an additional product that would see market in late '23 or '24. I would say, in 24 months from now, there'll be 2 additional FeraMAX products in the market, in addition to those that I've just spoken about.

I've already mentioned Tibella, which is still in the launch phase. Combogesic, still in the launch phase. We have a new women's health product that's been approved by Health Canada. We in-licensed that at the end of 2020. We needed to do some work with Health Canada to get the label the way we wanted, that we thought it needed to be for health care professionals and patients. We've achieved that milestone with Health Canada. And the launch preparations are now underway. We're talking to key opinion leaders, to other health care professionals in this therapeutic area, and we expect to launch that product within the next 12 months.

So one of the things that one must do to balance all of this launch activity is to manage the portfolio so that we have the right focus on the business, that we've got the right focus on brands that can give us growth in the future and meet our profit expectations as well.

And as we announced in the middle of last year, we planned to discontinue the sale of Aguettant System and Cysview. We've done that. We've returned those -- the product rights back to their owners. And I just wanted to add a little bit of color to that decision, kind of what goes into that decision and how we think about these things.

So there's slightly somewhat different situations for each Aguettant and Cysview. The Aguettant System, we had 2 products effectively, one of which was quite profitable, one of which had a fair bit of volume but was not nearly as profitable, in fact not profitable. And the partner had some products that they wanted to add to the market, and they wanted to have terms that look more like the unprofitable product. So we decided to shake hands. We did not see a pathway to get a return on our investment and in launching additional Aguettant products. And we really didn't have the breadth of portfolio that we needed to manage the needs of our customers there.

Cysview is a different scenario. That product struggled. It did not have reimbursement. And we had modest uptake. Though we had many sites that we initiated, those sites could not get their administration to essentially pay for the product. And so it was never profitable. And our arrangement with the brand owner was that we had some milestone payments to come and we had no pathway with those milestone payments to get any return on investment. So we made the challenging decision to give those product rights back and focus our capital and our time and energy on products that can drive growth into the future.

I've spoken about that with respect to both existing and new on the way FeraMAX products that are coming out of our life cycle strategy, Combogesic, Tibella, the new women's health product. We are working on acquisition opportunities at the moment, and we have several in-licensing as well. I realize that over the last couple of years, I guess, going to the end of '19, since then, 2 new in-licensing products were announced. We are internally deriving new assets as well. So that's something to keep in mind as you're looking at us kind of flushing out our portfolio so that we've got fuel in the tank for growth into the future.

So let's take a look at how the profitability in the business turned into cash in the bank. This chart shows you our cash position over the last 3 years ending December 31. Our cash on December 31, '21, was $28.2 million. The company has no long-term debt. In the year, we had cash from operations of just under $4.7 million. We spent just over $1.3 million buying back shares. So during the fiscal year, just over -- or just under 181,000 shares were purchased. And you see that our steady execution against our strategy has driven a 21% return on equity.

So this is a good time to segue into, okay, René, what do you intend to do with that cash? So that's a question that we've had from time to time. And I think the best way to talk about that and to answer it is to talk about our strategy and how we think about capital allocation in support of that strategy.

The first I'd say is if you look across our industry, $28 million relative to the size of our company, our revenue, is a lot. It's strong. It is not necessarily if you also factor in asset acquisitions in our industry that could run into the double-digit multiples of EBITDA. So you'll know that the $28 million is significant and is not to be taken lightly, but it is also to be thought about in terms of the spend and the opportunity to deploy that capital.

So we think about it in terms of our strategic plan. It's a process that we undergo on a periodic basis. We just updated our strat plan. It now covers the period of 2021 to '25. I mentioned this in my November presentation. It was updated in the first half of last year.

And there's 3 key areas that we think about in our business and that we want to make sure that we deliver on each of those. One is growth, top line and profitability. One is diversification of our business and our portfolio. And the third is longevity. So each of those are important. We think in the long term. We think not about having a strong quarter or 2 quarters or a strong year or 2. We think about what our business looks like in 10 years and our business being around in 20 years.

We know how to do that, that we need to drive growth. We need to expand our business and go deeper, both in terms of organic growth with existing assets and to add new assets so that our business is based on multiple products that are significant in terms of driving revenue and cash flow. And then we think about our business in the long term, and we make decisions about allocating capital to growth and diversification in the context of longevity.

Our first use of capital is against those 3 themes in our strategic plan. If, however, we deem that we have excess capital, we have discussions amongst the Board about how to allocate that and return some to shareholders. So excess cash would be returned to shareholders. The obvious way to do that is dividends and share buybacks, and I'll be talking in a few moments about our share buyback activity.

So as we go into those 3 themes for capital allocation, growth is really about growing the top line while sustaining profitability, not surrendering profitability. We think that's been ingrained in our culture at BioSyent. You saw it in my comments about 46 consecutive quarters of profitability. There are ways to cut corners in our industry. We've decided not to do so. And you can see the effect. If you look kind of across the competitive landscape in Canadian spec pharma over the last 5 to 8 years, there are several examples of maybe trying to get to the end before certain steps were taken and the right decisions made.

We're continually working on expanding our product portfolio. This is through both acquisition and in-licensing. I've spoken about a number of assets that we've got in market and coming to market. And then finally, as we allocate capital to longevity, it's really a theme around decision-making and to make sure that we're looking at those growth opportunities and diversification and that they fit a long-term approach to the business. And ultimately, our goal is to grow a substantial business and for it to be significant and provide significant value to our shareholders.

So I mentioned NCIB activity. As you know, we initiated share buybacks in December of 2018. We've now gone back to the regulator to get to approval for our fourth NCIB that was announced in December of 2021. In aggregate, since the 10th of December of 2018, right through until March 8, we've purchased just a shade under 1.9 million shares, or repurchased 1.9 million shares for a total consideration of around $11.8 million. That works out to about $6.25 a share that we've spent over that period of time. Since our most recent NCIB was announced, we've repurchased 144,800. And to be more specific than that, since you were looking at a kind of quarter end presentation, since January 1, so subsequent to quarter end, we've repurchased 123,700 shares from January 1 to March 8.

Those shares in our NCIB 4 were purchased at an average price of $8.13. I think the prices ranged from high $7. I think we paid all the way up to $8.50 in December. Most of the activity seems to have been, of late, more in the kind of low $8 range.

So one thing that I wanted to point out was that through this time, well, at least starting early 2019, we haven't issued any new stock options. So we have put that form of compensation on pause. And so we're not buying back shares in the market while we're leaking them out through auction grants on the other side.

We also have a new, relatively new, 2 years new RSU program. And that's fully funded. So we buy shares in the open market, and we hold them in trust. So once again, a very shareholder-friendly activity. And there's a reason for that, and that's because 25% of our company is owned by insiders, management, directors and employees of the company. So we own it, and we're going to behave like owners of the business and make sure that we take good care of the capital.

So I want to finish the presentation with just a real quick look at our cap table. We've got just over 12.6 million shares outstanding; 225,700 shares held in trust; 170,504 options. These, as I say, have been options that were granted up until, I think, Q1 of 2019. And I can tell you there will be no option grants this year, to be consistent. We do have just over 192,000 RSUs outstanding. So all of that sums up to a fully diluted common shares of 12.778 million.

I wanted to thank you for your interest in BioSyent and for your continued support, and we look forward to reporting our continued progress on our organic growth and our launch activity and our in-licensing and acquisition activity as well. Thank you.